Water Still at Center Stage of Mining

Here in the US, we hear in the news how the drought in the western states is affecting the water supply for agriculture and for human consumption. Miners are also feeling the heat. Water continues to be one of the biggest topics among all mining communities. It is essential for dust control and liberation of minerals in flotation processes. And, as most of metals are coming from places where water is scarce, it puts more pressure on production costs as investment in water treatment and desalination take place.

As reported in the Wall Street Journal article on May 20th, as mining companies probe remote areas for increasingly scarce minerals, they are investing billions of dollars for water. Moody’s Investors Service estimates that mining companies spent $12 billion in 2013, three times as much as 2009, on water management, including treatment facilities and pipelines.

Some of this investment has to do with water rights. The article shares how two years ago, Freeport-McMoRan Inc., one of the world’s top copper miners, paid 69-year-old cowboy Richard Kaler $1.3 million for 280 acres of rocky ranchland in the eastern Arizona desert. But Freeport isn’t interested in his minerals. Instead, it wants his rights to fresh water, which it needs to expand production at North America’s biggest copper mine, spread across 65,000 acres nearby. Freeport aims to unearth almost one billion pounds of copper a year—37% of current U.S. annual output—at the Morenci, Ariz., mine by 2016.

The success of the Phoenix-based miner, hinges on its ability to secure and maintain water supplies in arid areas where copper is found. It requires heavy spending and delicate negotiations to minimize potential conflicts with local farmers and others who also need water.

Context is important, though. “It’s not that mining companies use a lot of water, but they tend to mine in rocky places without a lot of water,” said Mike Lacey, the director of water resources for Arizona. In the U.S., mineral extraction consumes around four billion gallons of water a day. For comparison, industry uses 18.2 billion gallons, all domestic households use 29.4 billion and agriculture uses 128.

What happens is as most available minerals are taken, what is left tends to be of lower grade, meaning that more rocks must be extracted and more water used to process them. “If you extract 100,000 tons of raw copper with 0.2% instead of 2% grade copper, you need 10 times as much rock and 10 times as much water,” said Paul Gait, an analyst at Bernstein. “Water is one of the biggest things mining companies have to worry about, and it’s going to get worse.”

The issue is especially crucial for copper and Freeport is not alone. Around half the world’s copper comes from a belt running from Utah to Chile under mountainous, dry areas, and costs for water are expanding. The Chilean parliament is considering forcing mining companies to build desalinization plants, which remove salt from ocean water, rather than use fresh ground and surface water for their operations.

BHP Billiton, another top copper producer, and its partners agreed to build a $3.43 billion desalinization plant for its massive copper mine in Chile’s Atacama Desert. Freeport in Chile recently completed a $315 million desalinization plant and pipeline. And in Peru, it is building a $340 million sewage treatment plant.

Water management costs are adding to pressure on copper miners amid a slide in prices—down 32% since highs reached in 2011—deflated by weaker demand, especially in China. But at about $3 a pound, prices are still higher than Freeport’s extraction costs in North America of $1.87 a pound, and up from prices that hovered around $1.50 a pound in the 1990s.

Analysts say copper prices are relatively resilient, because quality deposits are limited and the metal is essential to a wide variety of goods, from water pipes to iPhones. Analysts say Freeport isn’t at risk of having to close mines for lack of water, but having to increase spending on water could drive up miners’ costs.

In my opinion, this article highlights very well how critical the water is for miners and the impact it has in the production costs. With the diminishing ore grades the amount of mineral that would require to be processed will only increase the use of water. That is why there is no doubt that water will continue to be at the center stage of mining due its tight link with productivity and the relationship with surrounding communities. Securing water rights from the surrounding areas will help miners in the short term, but as I mentioned before, this is complex a problem that will require investments in technology and innovations to solve the problems. Miners would have to invest in technologies, like WirelessHART instrumentation, that will allow them to monitor and account for every drop of water used in the process and recycle back as much as possible.

The drought in the western US might not just affect how much water you can put in your lawn and the price of food at the supermarket, but also the price for the copper you use in your smart phones.

Addendum from Jim Cahill: You can connect and interact with Juan Carlos and other mining professionals in the Metals & Mining track of the Emerson Exchange 365 community.